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Daugaard offers budget plan again limited by tight revenues

PIERRE, S.D. (AP) — Gov. Dennis Daugaard outlined state spending priorities Tuesday that are limited for the second year in a row by disappointing South Dakota tax collections, proposing a plan that would fill an immediate shortfall this budget year and keep state employees' wages mostly flat over the next.

The $1.62 billion general fund budget proposal, which the Republican governor outlined in his annual address to the Legislature, includes roughly $32.4 million in state spending increases for the upcoming 2019 budget year.

The proposal for the upcoming cycle would add more than $20 million in education spending, nearly all from K-12 enrollment growth, but schools wouldn't see an inflationary funding increase per student under the plan. Most state workers wouldn't see raises under Daugaard's budget outline.

"It's just the way it is. I mean, if there's not money there, there's not money there," House Majority Leader Lee Qualm said after the speech. "There's some other people that are struggling as well with this whole economy, and so we just need to ride this thing out."

The GOP-controlled Legislature will reshape the current budget and approve the next one during the legislative session that begins in January — Daugaard's last as governor. Term limits bar him from running again next year, and he leaves office in 2019.

"South Dakota is working," Daugaard said. "We're working better than many other states."

State collections for the current budget year, which started July 1, are not meeting lawmakers' projections.

Recently released state figures show that revenues for the first four months of the current budget year are roughly $8.3 million, or 1.5 percent, below expectations due in large part to short sales tax receipts. Officials pin the weakness in sales tax, the state's main revenue source, on low farm income and inflation, e-commerce sales and increased health care costs.

The figures through October show that a tax imposed on construction contractors has brought in less than lawmakers had previously anticipated, while tobacco taxes and an insurance company tax are also among the state receipts down from projections.

The governor's plan projects that revenue for the current budget year will be about $20.3 million lower than previously anticipated, a nearly 1.3 percent decline. Increased expenses for education and other areas will add more than $10 million to state costs, serving up a total expected shortfall of nearly $34 million.

Daugaard would address the shortfall through a near split of reduced spending and cash sources such as budget reserves.

Qualm said officials have been expecting the projected shortfall. He said Daugaard has proposed to address the shortfall in a "fiscally responsible" manner.

The governor's plan for next budget year calls for spending nearly $1.7 billion in federal funds, over $1.3 billion in other state money and about $1.6 billion in general funds, totaling almost $4.7 billion.

Lawmakers also dealt with sluggish state tax collections in the 2017 legislative session. But South Dakota ended the 2017 budget year in June with a surplus built on state spending reductions after Daugaard asked agencies to cut expenditures in the face of weaker-than-anticipated revenues.